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How to choose mutual funds to invest in
(lemm.ee)
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this post was submitted on 05 Sep 2024
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A total market fund, or S&p 500 fund would be a good start. Pick something with a low percentage fee
Decimal fractions of a percent are low fee. Vanguard is mostly, if not completely, low fee.
To quantify it, anything under 0.20% is "low" to me, and many funds are <0.05%.
That said, once you get below a certain amount, comparing between "low" fees isn't very interesting. For example, my 401k is switching their S&P 500 fund from a 0.04% fund to a 0.015% fund, which is >2.5x lower fees, but in terms of actual dollar amounts is pretty inconsequential (e.g. for $100k invested, it's $25/year savings. At that point, I'm much more interested in the quality of the fund (i.e. how well it tracks its index) than the actual fees, since even a small amount of inefficiency (more cash, late rebalances, etc) can be much more impactful than that fee difference.
So anything under 0.50% is fine, and anything under 0.20% is "good," and comparing expense ratios breaks down when the difference is <0.05%. At least that's my take.
Thanks! Noob question - what is a "low percentage fee" in this context?
It's the fee the fund manager charges. Looking at mine, they call them expense ratios. Big broad stuff like S&p and total market is typically low fee <1%. But something that tracks a specific market sector, or a really active fund could charge >5%
Gotcha. Thank you for the explanation!
Just to emphasize the importance of low expense ratios: you don't just lose the money you pay to the fund manager. Over time you also lose what that money could have made if it had stayed invested. Even a modest retirement fund can have an opportunity cost of $50k by the time you retire. As another commenter said, Vanguard tends to have the lowest fees.
100 percent this. Anything SP backed is gonna be safe. Unless you can do a CD, some have good rates of like 4-5 percent. T-bills tend to be too low yield for me tho.
Never say safe, especially with the S&P it is a risk and people should understand that, but for most people who predict being able to hold for a long period it works.